Alternative Currencies Rise as the Eurozone Crisis Worsens

The advantages of non-political innovations and cryptocurrencies

For weeks commentators have been discussing the possibility of Greece leaving the eurozone and how a return to the drachma might be facilitated. But when it comes to currency, the drachma is not Greece's only option. If Greece does exit the eurozone an alternative currency could emerge or an already existing one could be adopted. In some parts of Greece social entrepreneurship, technology, and skepticism of politicians have already given rise to alternate trading mechanisms and created an environment where cyrptocurrencies could become increasingly popular.  

As the euro crisis worsened many Greeks began hoarding euros, and more recently there have been small runs on banks. Spending on goods has gone down and prices have been rising. In the Greek city of Volos social entrepreneurship has resulted in a modest but inspiring solution to this trend. One Volos resident started TEM, an online bartering system that allows residents to purchase groceries and other goods in exchange for services while keeping their euros to pay the rent.

With a Greek exit form the eurozone a very real possibility such examples of social entrepreneurship may well become more and more common as the crisis deepens.

Greeks have contradictory opinions on the euro. While the overwhelming majority of Greeks want to stay in the eurozone, a majority of the Greek public is also strongly against the austerity measures required in the bailout agreement. George Zarkadakis, a Greek novelist, journalist, and entrepreneur, explained the political paralysis in Greece to Reason. "The Greek idiocy was that nobody wants to reform," he says. "Greece is a state-controlled economy, the Greek political class wants to rescue their civil service and nothing has been done in the past two years."

The euro crisis provides an example of the kinds of situations where competitive currencies might prove useful. Modern technology has only made the development of these "currencies" easier and in many ways more desirable. Safe from the level of regulation suffered by government-issued money, cryptocurrencies are more flexible and convenient for purchases and sales.

The most prominent of these cryptocurrencies is bitcoin. Bitcoin frees those who use it from political uncertainty, fiat policies, and is less affected by international money markets than traditional currencies. Isolated from the political environment in Europe, bitcoin offers Europeans a viable alternative to the euro and to a return to traditional currencies. There have been reports of more Europeans using bitcoin as their confidence in political solutions diminishes.

(Article continues below video "Bitcoin and the End of State-Controlled Money.")

Both TEM and bitcoin offer some welcome relief from the current situation in Europe. There is no government interference (yet) and transactions are free.

This is not to say that there are not concerns over bitcoin. George Selgin, professor of economics at the Terry College of Business at the University of Georgia, points out that bitcoin breaks the dichotomy of fiat vs. commodity money proposed by the pioneering Austrian economist Carl Menger. Selgin calls bitcoin a "quasi-commodity system" and argues that it is not money. Bitcoin is not widely used for transactions, and according to Selgin the euro crisis is not serious enough for bitcoin (or something similar) to spontaneously emerge with any degree of influence. Even in the Weimar Republic Germans resorted to using already existing currencies like the British Pound rather than creating a new currency. For Selgin the unorthodox status of bitcoin, the lack of historical precedent, and its mono-linguistic culture makes a mainstream bitcoin emergence in Europe unlikely.

Jerry Brito, senior researcher at the Mercatus Center, agrees that bitcoin is not a viable rescue tool for Europeans, but he does see bitcoin as money. According to Brito, one of the main advantages of bitcoin is its power to overcome regulations. There is no central bank or regulator with bitcoin, and it will exist as long as the Internet is around. It is open source and peer-to-peer. While bitcoin might not take off en-mass in Europe, Brito notes, some German and Greek companies are already using it, and there is no reason to think others will not begin to do so as well.

Greece will almost certainly leave the euro. How ordinary Greeks react will define their economic livelihood for decades to come. The use of TEM in Greece and the rising appeal of cryptocurrencies are some indication of the non-political solutions some Europeans have in mind. While cryptocurrencies have not yet been widely adopted, the euro crisis provides an ideal environment for them to flourish. With governments inflicting a huge amount of damage, currencies without central control look increasingly attractive. 

At the moment it is hard to see what silver lining there might be in the current situation in Europe. While politicians are typically pushing for closer fiscal union, social entrepreneurship and peer-to-peer innovation and cooperation are producing safer and revolutionary solutions.

 Matthew Feeney is assistant editor of 24/7 News at Reason.com.